If you follow the video game industry, the odds are good that you've heard of Activision Blizzard (NASDAQ:ATVI). The gaming giant develops many popular game franchises, including the Call of Duty series of first-person shooters, the extremely popular multiplayer online role-playing game World of Warcraft, and, thanks to its acquisition of King, mobile games like Candy Crush

Perhaps you're a fan of the company's games, or people around you seem to be glued to the gaming giant's titles, leading you to consider an investment in Activision Blizzard stock. Or maybe you're simply confident in the future of video games and think that investing in a market leader is a good way to profit from overall industry trends.

Whatever the case, it's important to have a good understanding of just how Activision Blizzard makes its money before investing in the company.

A virtual man with a blue shirt and tie giving the screen a thumbs-up.

Image source: Activision.

Breaking down 2018

Activision Blizzard reported generating $7.5 billion in revenue during calendar-year 2018, a figure that was up 6.9% year over year. The company also reported non-GAAP earnings per share (EPS) of $2.72, rising 23.1% from the prior year. 

Activision Blizzard breaks out the financial performance of its three core businesses: Activision, Blizzard, and King. Activision Blizzard also reports financial results from outside of those three segments, which the company says incorporates "our studios and distribution businesses" as well as "unallocated corporate income and expenses."

In 2018, the company's Activision segment -- which is responsible for franchises such as Call of Duty -- turned in $2.46 billion in revenue and $1.01 billion in operating income, making it the largest contributor to both revenue and operating income of the three core segments.

The company's Blizzard business, which depends on games like World of Warcraft and Diablo to keep humming, generated $2.24 billion in revenue and $685 million in operating profit. Those results made Blizzard the company's second-largest segment by revenue, but its operating profit performance put it in third place.

King, Activision Blizzard's last segment, raked in $2.09 billion in revenue and $750 million in operating profit. It's in last place as far as revenue goes (although each of the company's three segments really do pull their own weight), but in second for operating income.

Remember when I said that Activision Blizzard also reports results outside of those three core segments? In 2018, the company generated $480 million in revenue and $31 million in operating income from its nonreportable segments.

An additional $238 million of the company's 2018 revenue came from the "net effect from recognition (deferral) of deferred net revenues," which the company explains relate to "certain of our online-enabled products."

Breaking it down by platform

We've taken a look at how Activision Blizzard's business is broken down by segment, but another worthwhile way to examine the business is by platform. A key Activision Blizzard competitor, Electronic Arts (NASDAQ:EA), generates most of its revenue from game console titles. Activision Blizzard's revenue breakdown by platform is distinctly different. 

In 2018, 34% of the company's sales came from console games, 29% from PC games, 29% from "mobile and ancillary," and  the remaining 8% from "other," which the company explains as "revenues from our studios and distribution businesses, as well as revenues from Major League Gaming and the Overwatch League." 

So, Activision Blizzard's business is fairly evenly distributed across the key gaming platforms.

Investor takeaway

If you're looking to gain exposure to the game industry, then Activision Blizzard looks like a good bet. The company has a broad and deep portfolio of game franchises and has balanced exposure across the three main gaming platforms. 

Fair warning, though -- the company's business is set to experience a bit of turbulence in 2019. The company's forecast calls for its revenue in calendar-year 2019 to come in at just $6.02 billion and EPS on a non-GAAP basis of $1.85. Those figures are both down substantially from the $7.5 billion and $2.72 that the company enjoyed in 2018. 

Management explained that in 2019, it plans to grow the number of individuals working on its Call of Duty, Candy Crush, Overwatch, Warcraft, Hearthstone, and Diablo franchises by "approximately 20%." 

To fund that increase, the company is taking action to cut "non-development and administrative-related costs across the business," and will have to swallow a $150 million pre-tax charge as a result.

Despite that turbulence, I think Activision Blizzard is a well-built company with exposure to the right platforms, a portfolio of compelling franchises, and a capable management team that seems to be making the right moves to position the company for the long term.